How to Track and Manage GST in Your Business

For New Zealand businesses, tracking and managing GST is vital for compliance. Here's how to keep it simple and stress-free.

Keep Digital Records

Using software to record GST on each transaction reduces manual errors and helps with reporting.

Modern accounting software designed for New Zealand businesses makes GST tracking significantly easier. These systems can:

• Automatically calculate GST on sales and purchases
• Generate GST-compliant invoices
• Track GST collected and paid
• Categorize transactions based on their GST status (standard-rated, zero-rated, exempt)
• Prepare GST return information when filing time comes

Popular options include Xero, Moniaro Books, MYOB, and QuickBooks, all of which offer specific features for New Zealand GST requirements. Even for very small businesses, the time saved and reduction in errors typically outweigh the cost of subscription.

If you're not using accounting software, consider at minimum using spreadsheets with formulas to track GST. This is less automated but still provides a digital record that can be searched, backed up, and analyzed.

Whichever system you choose, ensure it:

• Is backed up regularly
• Allows for easy retrieval of historical information
• Can generate reports showing your GST position
• Maintains records for at least the required 7-year period

Separate GST Funds

Set aside the GST collected in a separate account. This ensures you have the funds ready for when GST is due.

This simple practice can prevent one of the most common GST challenges: spending money that actually belongs to Inland Revenue. When you collect GST from customers, you're essentially holding that money on behalf of the government until it's time to pay it.

Consider these approaches:

• Separate Bank Account: Open a specific account just for GST. When you receive payment from customers, transfer the GST portion to this account.
• Regular Transfers: If a separate account isn't practical, schedule regular transfers of the GST amount to your tax payment account based on your sales records.
• Accounting System Tracking: Use your accounting software to track "GST owed" as a separate liability, even if the physical funds are in your main account.

For example, if you invoice a client for $1,150 including $150 GST, when payment is received, transfer $150 to your GST account. Over time, this account will accumulate the funds needed for your GST payment.

This practice is especially important for:

• Businesses with irregular cash flow
• Seasonal businesses with high and low periods
• New businesses still establishing financial discipline
• Businesses on six-monthly filing (managing GST over a longer period)

Monitor Sales and Expenses Regularly

Regularly tracking sales and GST-related expenses keeps you prepared for filing.

Instead of leaving everything until the end of your GST period, implement a routine of regular monitoring:

Weekly Tasks

• Record all sales and their GST components
• Enter all purchase invoices and receipts
• Transfer GST collected to your GST account
• File tax invoices and receipts in an organized system

Monthly Tasks

• Reconcile bank accounts to ensure all transactions are captured
• Review GST collected and paid to date
• Check for any unusual transactions or potential errors
• Ensure all necessary tax invoices have been received from suppliers

Before Filing

• Review all transactions for the period
• Check for missing invoices or receipts
• Verify that GST has been correctly recorded
• Prepare any necessary adjustments
• Ensure sufficient funds are available for payment

Regular monitoring helps identify and address issues early, rather than discovering problems at filing time when it may be too late to correct them efficiently.

Understand Different GST Categories

To manage GST effectively, you need to understand how different types of transactions are treated:

Standard-Rated Supplies (15% GST)

Most goods and services in New Zealand fall into this category. You charge 15% GST on these sales and can claim input tax credits on related purchases.

Zero-Rated Supplies (0% GST)

These include exports and the sale of going concerns. You don't charge GST, but you can still claim input tax credits on related expenses. These transactions must still be reported in your GST return.

Exempt Supplies

Financial services and residential rent are common examples. You don't charge GST, and you generally cannot claim input tax credits on related expenses. These transactions are outside the GST system.

Mixed-Use Assets

For assets used for both business and private purposes, you can only claim the business portion of the GST. Maintain good records of how you calculate this portion.

Ensure your accounting system can correctly categorize transactions based on these GST treatments. This will make preparation of your GST return much easier.

Keep Valid Tax Invoices

To claim GST on purchases, you need valid tax invoices. For purchases over $50, a tax invoice must include:

• The words "Tax Invoice"
• The supplier's name and GST number
• The date of issue
• A description of the goods or services
• The amount of GST charged or a statement that GST is included

For purchases under $50, a simplified invoice or receipt is usually sufficient, though it must still show that GST was included.

Develop a system for organizing and storing invoices and receipts:

• Digital Storage: Scan paper invoices or request electronic invoices when possible. Use cloud storage with appropriate folders by date or supplier.
• Physical Filing: If using paper, organize by month or GST period in clearly labeled folders.
• Naming Conventions: Use consistent file naming for electronic documents to make retrieval easier.

Remember that Inland Revenue requires you to keep records for at least 7 years, so your storage solution should be durable and accessible for the long term.

Use GST-Compliant Invoicing

When issuing invoices to your customers, ensure they meet the requirements for tax invoices:

• Include the words "Tax Invoice" prominently
• Show your business name and GST number
• Include the date and a unique reference number
• Provide the customer's name and address
• Describe the goods or services supplied
• Show the price excluding GST, the GST amount, and the total including GST

Most accounting software will generate compliant invoices automatically. If creating invoices manually, use a template that includes all required elements.

Consistent, compliant invoicing helps your customers claim their input tax credits and reduces the likelihood of queries or disputes about GST.

Understand Your Filing Obligations

Know your GST filing frequency and deadlines:

• Monthly: For businesses with turnover over $24 million or those who choose monthly filing
• Two-monthly: The standard option for most businesses
• Six-monthly: Available for businesses with turnover under $500,000

Standard due dates are the 28th of the month following the end of your GST period, except for the period ending November 30th, which is due by January 15th.

Mark these dates in your calendar and set reminders at least a week in advance to give yourself time to prepare. Consider filing early to avoid last-minute issues.

Handle Adjustments Correctly

Various situations require GST adjustments, including:

• Private use of business assets: When business assets are used privately, you need to account for GST on this use.
• Changes in use: When the business-use percentage of an asset changes over time.
• Bad debts: When a customer doesn't pay, you may be able to claim back the GST previously paid to Inland Revenue.
• Credits and returns: When goods are returned or credits issued, GST adjustments may be needed.

Understand how these adjustments should be calculated and recorded in your accounting system. For complex adjustments, consider seeking professional advice.

Reconcile Regularly

Regular reconciliation helps ensure your GST records are accurate:

• Reconcile bank accounts to your accounting records
• Check that GST collected matches your sales records
• Verify that GST claimed matches your purchase records
• Compare your calculated GST position with what's showing in your GST account

Addressing discrepancies early prevents them from becoming larger issues at filing time.

Consider Professional Help

If GST management becomes overwhelming or your business has complex GST situations, consider engaging professional help:

• Bookkeeper: Can help with day-to-day GST recording and report preparation
• Accountant: Can provide advice on GST treatment of complex transactions and review your GST systems
• GST Review Service: Many accounting firms offer periodic GST health checks without ongoing services

The cost of professional assistance is often outweighed by the time saved, reduced risk of errors, and peace of mind that your GST compliance is in order.

Stay Informed About Changes

GST rules and procedures can change over time. Stay informed by:

• Subscribing to Inland Revenue updates
• Following tax news sources
• Joining business associations that provide tax updates
• Attending occasional workshops or webinars on GST

Being aware of changes ensures your GST practices remain compliant and may help you identify new opportunities for simplifying your GST processes.

Conclusion

Effective GST tracking and management doesn't have to be complicated. By implementing good systems, maintaining regular routines, and staying organized, you can ensure GST compliance without it becoming a major administrative burden.

Remember that good GST management is part of good overall financial management. The systems you put in place not only help with tax compliance but often contribute to better business decision-making and financial control.

With consistent attention and the right tools, GST can become a routine aspect of your business operations rather than a stressful obligation.